Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Perenti (ASX:PRN). While profit isn’t the sole metric that should be considered when investing, it’s worth recognising businesses that can consistently produce it.
See our latest analysis for Perenti
Perenti’s Improving Profits
Over the last three years, Perenti has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn’t particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Perenti’s EPS skyrocketed from AU$0.081 to AU$0.13, in just one year; a result that’s bound to bring a smile to shareholders. That’s a fantastic gain of 59%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. While we note Perenti achieved similar EBIT margins to last year, revenue grew by a solid 14% to AU$3.1b. That’s encouraging news for the company!
You can take a look at the company’s revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
While we live in the present moment, there’s little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Perenti?
Are Perenti Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
In the last year insider at Perenti were both selling and buying shares; but happily, as a group they spent AU$250k more on stock, than they netted from selling it. On balance, that’s a good sign. We also note that it was the Independent Non-Executive Director, Craig Laslett, who made the biggest single acquisition, paying AU$80k for shares at about AU$1.06 each.
On top of the insider buying, it’s good to see that Perenti insiders have a valuable investment in the business. Indeed, they hold AU$69m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 7.2% of the company, demonstrating a degree of high-level alignment with shareholders.
Does Perenti Deserve A Spot On Your Watchlist?
For growth investors, Perenti’s raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. So it’s fair to say that this stock may well deserve a spot on your watchlist. It’s still necessary to consider the ever-present spectre of investment risk. We’ve identified 3 warning signs with Perenti , and understanding them should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Perenti, you’ll probably love this curated collection of companies in AU that have an attractive valuation alongside insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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